Stable Labor Market to Keep Fed on Track to Raise Rates Gradually
The Federal Reserve's decision to hold interest rates steady last week signals a cautious approach amidst a stable labor market, aligning with expectations for a gradual rate increase in December. The Fed aims to strike a balance between supporting economic growth and managing inflation, a consideration that has significant implications for the USD. Observers note that this steady approach may bolster market confidence but also highlights the Fed's commitment to a data-driven path moving forward.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The New York Times’ assessment reinforces the outlook of a measured Fed, aligning closely with the upper spectrum indicated by several firms.
How firms align
JPMorgan's view aligns with the Fed's trajectory towards gradual rate increases, targeting 1.10 for March 2026. In contrast, BofA adopts a more bearish stance with a target of 1.04 for the same tenor, reflecting their concerns over inflation dynamics and economic performance.
What the data shows
Recent revisions suggest a stable labor market may encourage further tightening, as indicated by the Fed's cautious approach. These insights align with our internal research, which suggests monitoring labor data closely to gauge the Fed's next moves.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Fed expected to raise rates gradually, targeting Dec for the next hike.
- 02Stable labor market may lend support to USD in the medium term.
- 03Watch for labor data releases as key catalysts for Fed's decisions.
Market implications
Investors should keep an eye on the December FOMC meeting as a key event that could drive USD movement. A move towards 1.075 in EUR/USD is possible if labor data supports Fed expectations.
Risks to this view
A sudden deterioration in labor market conditions or unexpected inflationary pressures could lead to a shift in the Fed's approach, potentially invalidating the bullish USD outlook.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.70
Sources & References
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